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World > Europe > Serbia > Economy (Notes)

Serbia - Economy (Notes)


ECONOMY
Serbia's economic progress since the fall of Milosevic has been substantial, with output up nearly 46% since 2000. The stable dinar, a budget surplus, and a restructured financial sector all demonstrate the success of stabilization policies. The short-term economic outlook for Serbia is positive, but enterprise restructuring and unemployment remain major challenges.

Growth in 2006 was a healthy 5.8%, but this pace slowed during the first quarter of 2007. In 2006, due to a shift in central bank policy to target inflation, the inflation rate declined to 6.6%, from 2005's 17.7%. Further decreases in inflation are expected in 2007. The increase in industrial production of 4.7% in 2006, compared to a mere 0.8% in 2005, is the highest in six years, and a welcome development after the stagnation of 2005. Industrial growth continued in 2007, averaging 4.8% during the first quarter. The current account deficit was 10.6% of GDP in 2006, with healthy export growth of more than 43%. Higher imports and consumption rates in early 2007, however, indicate that the trade gap may widen and cause the current account deficit to creep higher. Based mainly on large privatization receipts, foreign exchange reserves held by Serbia's central bank skyrocketed over 18 months to nearly U.S. $12.9 billion as of May 2007, or an amount covering about 10 months of imports. In March 2007, the National Bank of Serbia completed pre-payment of its debt to the International Monetary Fund (IMF) with a payment of $232 million, which followed a June 2006 payment of $978 million.

In 2006, Serbia recorded its best year yet with respect to foreign direct investment (FDI), but greenfield investment is still rare. A large part of the record U.S. $5.4 billion in FDI for 2006 was realized from the sale of the leading mobile telephone company to Norwegian company Telenor for Euro 1.5 billion. The Government of Serbia has also adopted a strategy for oil company NIS that calls for gradual privatization, with initial sale of a 25% stake and management control to a strategic investor. During the first two months of 2007, FDI totaled $752 million, a small increase over the same time period last year.

The privatization of the banking sector has been completed, with over 70% of assets owned by foreigners. In the last major deal, National Bank of Greece signed a deal in September 2006 to buy Vojvodjanska Banka, Serbia's sixth-largest bank by assets, for Euro 385 million.

While economic reform has been moving forward in many areas, enterprise sector reform is still halting. Over 26% of all persons employed in Serbia work for state owned enterprises or the central and local governments. Privatization of the least attractive socially-owned companies, which still employ about 235,000 workers, has been left for the very last. They still place a drag on the economy via substantial fiscal and quasi-fiscal subsidies. Even successful privatization of socially-owned enterprises often means jobs losses, and this, together with the overall lack of greenfield investment, has driven unemployment to 21%.

While economic growth in Serbia continues at a healthy clip, this indicator alone may be misleading. Serbia is still far behind its neighbors, with GDP still only 65% of the level in 1989; production volumes have reached only 45% of that recorded when Serbia was part of the Yugoslav economy. Sectors such as textiles, motor vehicles, and electronic equipment have never recovered from the depression of the 1990s.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Ranking Positions
Notes and Commentary: People - Economy - Government and Political Conditions - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Ranking Positions


Notes and Commentary
People
Economy
Government and Political Conditions
Foreign Relations
Relations with U.S.





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